What is an Equity Release Calculator?

By Mark Gregory on March 11th, 2015

An equity release calculator is an online tool available to retirees looking for equity release products. There are various types of calculators to help you assess the different lifetime mortgages and home reversion plans available to you. As a person who is 55 years or older you may have a situation where you are equity rich in property, but lack available cash funds for your retirement. It can happen. Two recessions, a fluctuating stock market, and pension income issues due to the decline in annuities may have left your retirement funds lower than expected or gone completely. Before understanding what an equity release calculator is and will do for you, it is perhaps essential to look at different products on the market that fit this category.

 

Equity Release Products
Home reversion is a partial or full sale of your home for an agreed upon percentage in value. You may sell 50% of the home and receive up to 30% in value for that portion. The home reversion company earns no interest as you live rent free in your home until you die or need long term care. They only earn on their investment after the home is sold in full on the market. Any portion you still own is given to your beneficiaries and the other funds are the return on investment for the home reversion product.

 

Lifetime mortgages are available in standard, drawdown, enhanced, interest only and now voluntary repayment formats: –

 

1. A standard or roll-up lifetime mortgage compounds interest onto the principle loan amount until you repay it or die, then it gets repaid. No monthly payments are required and usually are for people with little or no interest in the inheritance they leave behind.

 

2. A drawdown lifetime mortgage offers a small lump sum in the beginning and a reserve facility to draw on as you need funds. The interest still rolls-up on the equity release mortgage, but only on the portions of cash withdrawn initially and from the reserve facility. Unused and available funds are not charged interest.

 

3. An enhanced mortgage offers you a larger maximum equity release lump sum than the standard roll-up mortgage based on ill health conditions such as diabetes, angina, Parkinsons or heart disease. The assumption is your life expectancy is lower if you have a health condition. Otherwise, the enhanced mortgage works by compounding interest just like a standard mortgage.

 

4. The interest only lifetime mortgage is going to charge you a monthly interest rate and will need verification of income to support the borrowings. Payments can start at a minimum of £25pm and up to the full amount charged in that month based on the Annual Percentage Rate (APR). The principle balance remains unchanged if all the interest is paid and the balance is repaid upon death or sale of the home.

 

5. Voluntary repayment schemes are the latest addition to the list of exciting new equity release products. Available on lump sum or drawdown basis, they facilitate the ability to repay upto 10% of the original amount borrowed each year without any penalty being applied. Therefore, the homeowner has the choice over how much to repay & when & NO income checks are necessary to qualify.

 

Equity Release Calculators in Detail
You now understand the different equity release products, which also mean there are different calculation requirements for these schemes. The equity release calculator is going to give you an estimated amount you can release in equity based on your age, or if you apply as a couple the age of the youngest, your health, and your property’s value. The sex is based on life expectancy where women used to live longer than men due to stressful working conditions, at least that was the theory. All equity release calculators work on the basis of the youngest applicant as they are theoretically going to live the longest. Others just want to know if you are applying jointly or as a single person. As a couple, at least one of the homeowners must be over the age of 55. Should one applicant not be & are married then most equity release companies will not accept an application. There are ways around this & expert equity release advice must be sought to be able to proceed on such a basis.

 

Your age determines how long the loan will be outstanding. The longer you have left the less you will receive as an equity release, because you have more years as well as more interest accruing onto the loan. Equity release calculators are just an estimate of potential, and not to be used as ‘set in stone’ for the result. They should always be used as a guide and using them this way will not underlie anyone’s expectations.

 

The result can vary because you may not have the current property value. You might use one that is before the recession or one that you obtained many years ago. Accuracy is purely in the information you provide.

 

Other Accuracy Factors
Another accuracy factor is the website you use. Some websites do not update their content frequently; therefore, their calculators do not have the most accurate interest rates and lending criteria to factor an accurate result. With websites that offer fresh and frequently updated content the admin is also working to update the calculator to provide accurate results.

 

You also have the option of finding calculators that are one step. This means you input the data and the result shows up immediately. Some calculators offer results for all lifetime mortgages and home reversion plans. Others will provide results for standard lifetime mortgages and the enhanced version, with a little statement that if your health is poor you can access this larger amount of funding. Make sure you are using an accurate equity release calculator with accurate details provided by you.

 

Now you have the information on what an equity release calculator is, how it works & the life changing results it offers, all you need now is to use one!

 

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